With advances in digital menu-board technology and sophisticated point-of-sale systems, restaurateurs are poised to flex their pricing muscle and capitalize on peak traffic periods.
And more are considering such options. Could the quick-service sandwich be a dime more during the lunch rush and then discounted 15 cents during the shoulder afternoon or slow evening daypart? Could the fast-casual glass of wine or bottle of beer be a quarter less at lunch and a wee bit more at dinner?
“With technology available nowadays in POS and digital menu boards, price changes are one of the areas operators can flex — in addition to LTOs,” said Leslie Kerr, founder of the Boston-based Intellaprice consultancy.
Independent fine-dining restaurants, such as Le Cirque in New York and the more polished upscale-casual MK in Chicago, already are using technology to offer discounts to guests who make reservations during less busy days and times. And many chain restaurants are beginning to reconsider how menus are priced in the wake of the Great Recession.
Even large casual-dining chains have found they can capitalize on new approaches to pricing. Chili’s Grill & Bar credits the move away from an all-day, one-price menu and toward the offer of lower prices on lunch items with helping the chain weather the recession.
Wyman T. Roberts, chief executive and president of Brinker International Inc., in a January interview said, “For 35 years we had one daily menu.
“We never really thought about how the world had changed and how lunch and dinner had become separate,” Roberts said, acknowledging that the recession highlighted the divide.
“We couldn’t expect [that] dinner prices would work at lunch the same way,” he said. “That was one big step. We built [the lunch offerings] to fit with the Chili’s brand.”
By the numbers
Customers are more accepting of variable pricing at restaurants, according to research by Sheryl E. Kimes, a professor of operations management at Cornell University’s School of Hotel Administration.
Kimes’ team asked 334 hotel guests to rate different kinds of restaurant pricing, such as one price offered at lunch and another at dinner, or one set of prices for weekdays and another on weekends.
“People will accept different prices by time of day and day of week, but what made that even more pronounced was the way you framed it,” Kimes said. “If you said, ‘It’s 20 percent cheaper to come during the week than on the weekend,’ people thought that was more acceptable than if you said it was 20 percent more expensive on the weekend.”
Family dining has tried period pricing, too — as at an IHOP location in Boston that’s near a college campus.
“They use a graveyard menu for the late-night period, when college students may be hungry and thirsty and may have, shall we say, a diminished capacity to read menus or make decisions and are clearly not concerned about money,” said Kerr of Intellaprice. “Hence, this location uses an abbreviated menu with higher-priced offerings [late at night] versus during daylight hours.”
Independently owned operations have great flexibility to try variable pricing, said John Gordon, principal of Pacific Management Consulting Group in San Diego.
“In chains, consistency was much more baked into their DNA early,” Gordon said. “Independents, by their nature, have more flexibility to try pricing.”
True hour-by-hour pricing schemes may be a few years down the road, Gordon said, and restaurants have yet to pick up on the “yield management” techniques of airlines and hotels, which charge higher prices during busier times and seasons.
“I think we are years away from that,” Gordon said. “Technically it could be done, especially if you are all on tablets and online ordering.”
The tablet ordering systems, such as those at Stacked Restaurants LLC in California and others in small-scale tests at such brands as Au Bon Pain, Buffalo Wild Wings and California Pizza Kitchen, offer operators more options for venturing into peak-period pricing or slow-daypart discounting.
“The nice thing about that is you’ve taken the human equation out of it to some degree,” Gordon said. “There’s a built-in routine of suggestive selling.”
At least one large Midwestern-based burger chain has looked at the idea of a daypart-based pricing structure, Gordon said, but no major chain has tiptoed into it nationwide.
“The challenge will be for chains that want to use fixed-price-point advertising in television or a digital blast they want to send out,” Gordon said.
Business cents
Benefits are on the horizon, though, according to Intellaprice’s Kerr.
“As a business practice it makes economic sense to base prices on peaks and valleys in demand,” she said. “For restaurants this would take the form of increasing prices during peak traffic and lowering them during slower days or times. That’s what early-bird specials are, and we see this in other industries quite often.”
The entertainment industry is forging the way, she noted.
“Movie theaters are charging more on weekends than they do on weekdays so that bargain matinees aren’t the only way to save on entertainment,” Kerr said. “But those who want to see the movie when everyone else does must pay more.
“Grocery stores price optimize throughout the year based on software that analyzes consumer purchase patterns,” she continued. “A business that maximizes profit based on the opportunities available is just conducting sound operating practices. Based on dollars and cents, this makes sense — and operators could realize better profits if they can implement this practice well.”
Still, restaurants face a number of hurdles in implementing peak-period pricing, she said.
“Historically, the disadvantages were operational — reprinting menus, updating menu boards — big burdens, where costs or impracticalities negated the advantages,” Kerr said.
“With technology paving the way, those problems are eliminated, [but] consumer acceptance becomes a factor,” she said. “Will there be backlash? Will consumers even notice the changes?”
The danger, she said, is that “at some point, word will get out.”
She cited Subway’s recent public relations challenge when its $5 Footlong was widely criticized for being only 11 inches, a problem amplified by hundreds of sandwiches pictured next to tape measures that showed up on a variety of Internet and social media websites around the world.
“If consumers make this a PR event, it doesn’t bode well for operators,” Kerr said. “Worse yet, if enough guests vote with their feet, it could harm loyalty, and in our industry that’s key.
“If guests become trained to follow the sale, this tactic could defeat its purpose of improving sales and profit,” she added.
At the same time, consumers have grown used to varying prices over the past few years as restaurant operators have deployed designated market area, or DMA, and zone-level pricing, Pacific Management’s Gordon said.
“We have moved from consistent nationwide price to more of a DMA schedule with some areas of opportunities where you have a touristy area or a high-profile area like Manhattan or San Francisco,” he said.
“I think we have about 500 different pricing ‘buckets’ in the country right now,” he said, which allows a national chain to price items differently in that many areas if they should wish.
“It makes no sense to have the same price in inner-city Dayton, Ohio, as in the more wealthy, older suburbs on the [city’s] south end,” Gordon said.
He said he expects more restaurant brands to consider period pricing.
With consumers showing some acceptance and technology making different prices throughout the day possible, the choice will come down to the guests, said Kerr.
“One crucial element here is how consumers view the dining occasion,” she said. “Is it a luxury, in which case consumers can do without, or is it a necessity, in which case consumers would absorb an increase with less of a change in demand?
“Operators need to ask themselves how much fluctuation is acceptable and what is the level of acceptance,” Kerr added. “So the challenge is how to implement such a change so that it meets the objective of better business results.”
Contact Ron Ruggless at [email protected].
Follow him on Twitter: @RonRuggless.